High Tech Border Security through Innovations in Sensor, Surveillance and Detection Technology

BorderandPortSecurity.com Reviews Security Market Perspectives from L-3 Communications Holdings, Inc., Technest Holdings, Detection Security Systems, TraceGuard Technologies, and Sense Holdings

By Ann-Marie Fleming www.BorderandPortSecurity.com , www.HomelandDefenseStocks.com June 2006

The Bush Administration is looking to build a comprehensive immigration system consisting of improved border security as well as interior enforcement through employer compliance and a reformed temporary worker program. In efforts to strengthen the security of the nation's borders the request has been made for an additional 6,000 border patrol agents deployed over the next two years. However, it has been recognized that increasing the number of border troops is only one component to the overall solution; escalating the utilization of advanced security technology representing another. Industry participants L-3 Communications Holdings, Inc. (NYSE: LLL), Detection Security Systems (OTC.PK: DSYS), TraceGuard Technologies, Inc. (OTCBB TCGD), Technest Holdings, Inc. (OTCBB: TCNH) and Sense Holdings, Inc. (OTCBB: SEHO) work to establish product portfolios to meet the changing needs for the homeland and border security market.

While the President pushes for increased manpower along the borders, additional and effective technology helps to supplement this need by allowing smaller numbers of patrol troops to do the work of many. According to Homeland Security Secretary Michael Chertoff in a recent briefing, "boots on the ground is not really enough. You've got to leverage those boots; you've got to make them as effective as possible. And the way to do that is more tactical infrastructure -- things like fences, vehicle barriers and roads -- and as important, next generation technology."

With the escalated focus on border security, the answer appears to surround a portfolio of innovative and effective technology rather than any one single solution. As Lou Kelly, President & CEO of The Security Network and Chairman for the Center for Commercialization of Advanced Technologies (CCAT) explains, "I don't think there is a standout technology that is grabbing the most attention. The border situation is one that needs a wide variety of surveillance technologies. The most common belief is that a system of systems will be put together that employs the right technologies at the right places. The things that are being looked at are such as unmanned air vehicles for patrolling long distances of unguarded border, technologies that detect deep tunnels, small man portable radar systems and improved night vision with color. In addition, they are looking at application of satellite communications in conjunction with various sensors for intrusion detection."

Border Technology:

With an eye on a well-balanced technology portfolio to service border security needs, sensors and detection systems, surveillance and identification products are gaining attention. On numerous occasions, the Federal government / DHS has expressed its desire for a "virtual fence" around the U.S. borders, describes Brian Ruttenbur, Equity Research Analyst with Morgan Keegan & Co. Inc covering Homeland Security Technology for Morgan Keegan. "Recent events such as the Dubai port deal and the immigration debate have seemingly fast tracked this proposal through Congress. The virtual fence as we see it will consist of various sensors deployed along U.S. borders. These will include chemical, biological, and radiological sensors, as well as intelligent video (infrared cameras, real time analytics, etc.), all linked to a network."

Technest Holdings, Inc. (OTCBB: TCNH) is a provider of two important technological components to border security efforts, namely remote sensing and biometrics. Joe Mackin, Technest's CEO explains, "One of our subsidiaries, EOIR Technologies, supports the research, development and fabrication of state-of-the-art remote sensing systems for the detection of vehicles, personnel and contraband. The sensor systems can be mounted on vehicles, fixed locations such as towers, manned or unmanned aircraft, or hand carried. By providing enhanced situational awareness of a border or security checkpoint, the technology allows for a better allocation of personnel resources to respond to incidents by freeing them from monitoring and surveillance tasks."

With security challenges still to be solved in a very competitive market, companies are working to innovate and improve upon the existing technological landscape in order to gain strategic advantage in this arena. Dr. Ehud Ganani, Chairman and CEO of TraceGuard Technologies, Inc. (OTCBB: TCGD) describes current EDS (explosive detection system) capabilities as dangerously insufficient. "For example, a recent GAO sting operation in April 2006 uncovered that passenger screening in 21 out of 21 US airports nationwide was unable to successfully detect explosives being smuggled aboard an aircraft. This happened even though GAO operatives were instructed to deliberately act suspiciously. The lack of detection capability demonstrated in this exercise could have devastating consequences at border crossings, with terrorists or hostile agents able to smuggle explosives and other hazardous materials and substances across the border."

TraceGuard's proprietary automated explosive trace extraction and collection technology is designed to enable the collection and extraction of traces of hazardous materials. The company is primarily focused on explosives, although its technology is also capable of extracting traces other materials, such as chemical and biological contaminants, as well as narcotics. Dr. Ganani: "Once TraceGuard's product suite, which is currently under development, is integrated with current and future analyzers and detection systems, we can look forward to improved overall explosive detection capability, greater reliability, faster throughput, and reduced operations and ownership costs."

Detection Security Systems, Inc. (OTC.PK: DSYS), an explosive and weapon detection technology company, has a portable device called the Milliscope, which according to the Company utilizes millimeter wave sensors to detect plastic explosives, metallic and non-metallic weapons and drugs. Gabe Bitton, Detection Security's CEO explains, "The Milliscope was designed to meet an increasing demand within the security arena for an accurate and portable explosive detection device that can be used alone or in conjunction with other screening solutions. It offers screening solutions for border checkpoints, airports and key infrastructure and will have the ability to use different sensors from 100GHZ (3mm) to 10THz (30um) allowing detection up to 7meters initially and later to be developed to reach up to 15 meters. This technology will also help to reduce the incidence of false alarms in concealed weapons detection and concealed explosives detection."

Dore Perler, CEO of Sense Holdings, Inc. (OTCBB: SEHO) a provider of biometric solutions, and micro-sensor identification systems understands that border security involves more than meeting the challenges of illegal immigration, as it also entails critical aspects of global security. Perler explains, "The only effective way to confront the nation's security needs is by the intelligent application and mass-deployment of secure -technology. Sense is well positioned to assist in these efforts with mature field-proven biometric identification technology. Also, together with Oak Ridge National Laboratory, we are developing patented MEMS-based equipment designed to quickly and inexpensively detect a wide-spectrum of explosives and chemical warfare agents. Sense's technology can be deployed to protect our borders and our critical infrastructure assets, as well as those of our allies."

As recent initiatives proposed by President Bush indicate, making the most effective use of personnel patrolling our borders is a top priority. "Genex Technologies, another Technest subsidiary, is an industry leader in the development of three-dimensional facial recognition systems. Traditional two-dimensional systems are limited by factors such as pose, lighting and expression of images in a database, making positive facial recognition difficult. Three-dimensional systems are significantly less susceptible to those conditions, and can be quite effective against disguises such as changes in facial hair. The utilization of a three-dimensional facial recognition system as a cueing device for Customs and Border Patrol agents also allows for better allocation of personnel resources for border security efforts," states Mackin.

Event Driven Market:

Many industry insiders have described the homeland security market as event driven, facing momentum shifts alongside worldwide hostile events. For industry participants looking to take advantage of this growing market forward thinking is necessary to be able to provide relevant and innovative solutions to security needs.

As Joe Mackin describes "Technest prides itself on being a nimble and responsive organization. The homeland security industry is certainly event driven, but Technest is committed to focusing on the specialty engineering niches we have developed. We flew over the World Trade Center to detect hotspots and off-gassing of chemicals in support of rescue efforts. We helped locate tiny pieces of the Space Shuttle Columbia, and we provided support to rescue and recovery following Hurricane Katrina, to name a few. Technest has dedicated itself to remaining true to our core competencies, and maintaining our status as a leader in our field."

Lou Kelly sees this industry in a global perspective as a large and ever growing security market, one that is largely influenced by each new event. "9/11 triggered an increase and acceleration in certain aspects of the security market and it stimulated a lot of companies that had never really gone after the security market to jump in. I believe in the long run they will fall by the wayside. It will be interesting to see what the effect is of the next major terrorist attack on the US. Most experts believe that it is only a matter of time until this occurs. There certainly will be a new spike in the market at that time. It is possible that the effects will last longer this time because it will serve to confirm that we are continuing to be very vulnerable regardless of the improvements that we have made," explains Kelly.

While the consensus sees the market continuing to be impacted by worldwide security events or lack thereof, other drivers are emerging. Jack Mallon describes, "The recent political activity and legislation being advanced by the administration and by congress is creating momentum for border security independent of any particular security event. An event would significantly add to this drive, but this area has a political voice behind it contributing to its prioritization."

Traceguard's Dr. Ehud Ganani adds, "As events worldwide have unfortunately demonstrated both before and especially since 9/11, the terrorist threat is not going to go away. The challenge facing DHS and companies in the homeland security space is to develop increasingly sophisticated technologies to meet that threat in an efficient and cost-effective matter while at the same time minimalizing the inconvenience to the general public."

According to Dr. Ganani, "TraceGuard is dedicated to developing solutions and applications that will help the industry become more proactive and less reactive to events. TraceGuard solutions are specifically designed with four main objectives: 1) to reduce the number of people waiting in line at airports; 2) to reduce the number of security screening personnel required to man the checkpoints; 3) to be sensitive enough to extract particles from fingerprints left by someone handling the explosives, and 4) to be deployed in conjunction with existing screening technologies."

Overall, despite the sector's influence by security events it has established itself as an industry here for the long run that continues to gain government and international support. Brian Ruttenbur explains, "Although homeland security funding is somewhat reactive and the market tends to base its opinions of our companies on various catalysts, we expect our companies to continue progressing in their growth cycles (obviously, some faster than others). Going forward, there is no reason to expect anything other than continued increases in the DHS budget each year. It is clear that terrorism is now something the U.S. will have to deal with on a daily basis, and funding will continue to flow to technologies that help deter and counteract terrorist activities.

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by Anne-Marie Fleming